Yesterday was another session doomed out of the gate, but it could have been worse. Buyers are not making any major moves ahead of hearing from Jay Powell tomorrow.

Once again, the U.S. Dollar Index (USDXY) and ten-year bond yield set the tone. Global jitters have investors from all corners of the world seeking shelter and comfort.

Growth names are taking it on the chin, and the Russell 2000 is in full retreat:

• S&P 500 (SPX) -0.41%
• Nasdaq Composite (COMP) -0.76%
• Russell 2000 (RUT) -0.96%
• Dow Jones Industrial (DJI) -0.55%
• U.S. Dollar (USDXY) +0.59
• Bitcoin (BTC) -4.22%
• CBOE 10 Year Treasury (TNX) +4.60%

Seasonality

We know this is the time of year when equity markets slide, and it’s even more pronounced in a midterm election year. But the other side of the script isn’t working. Treasuries and gold are not tearing it up, either.

Pulse

Talk about deterioration. Market breadth is getting uglier as decliners, and down volume dwarfed advancers and up volume. There was a combined 52 new highs against 620 new lows.

Market Breadth	NYSE	NASDAQ
Advancers	1,030	1,464
Decliners	2,194	3,075
New Highs	17	35
New Lows	222	398
Up Volume	1.28 billion	1.70 billion
Down Volume	2.77 billion	2.90 billion

Heat Map

There was a smattering of green, but there are messages there. People are still spending, and while more of it goes for inflation adjustments, the decline in gasoline prices means folks are charging it (see Mastercard (MA) & Visa (V)). Big pharma shares sent a message that nobody can beat them, and Real Estate (XLRE) stocks enjoyed the strongest outing.

Too Late to Chase, Too Early to Bottom Fish

The same sectors continue to lead the pack, and they’ve had a good run.

You could hide out in defensive sectors like Utilities (XLU) and Consumer Staples (XLP) or lean into Energy (XLE), which acts better than the action in crude oil. Still, they are all overvalued on a relative basis, each changing hands above their five-year average forward price-to-earnings (F P/E) ratio. Consumer Staples and Utilities are well above their ten-year average as well.

Key Technical Tests

The NASDAQ Composite is down seven straight sessions, and blew under a perfect 50% retracement of the June 16^th rally at 11,887.

There are some smaller downside gaps to watch for, but right now, the index is oversold.

The S&P 500 is holding above 3,900 as precariously as Humpty Dumpty. It held. But by golly, it was so close; it would be amazing if this is where the bounce made it stand.

Portfolio Approach

There are no sector weighting changes in our Hotline Model Portfolio

Today’s Session

The narrative of better-than-expected news is the main focal point this morning as a 75bps hike become conventional wisdom.

What’s really intriguing is the the nuance of reports, including the jobs report, which had a number of red flags; one being the record number of folks working two full time jobs.

Also, yesterday’s ISM Services read was better than expected, but the PMI Service report was a disaster.  I’m cool with the Fed hiking 75 bps at the next meeting.  I had been rooting for 100 bps at the start of the cycle.

 But I think ulterior motives are leading to poor and misleading assumptions that could be problematic down the road.

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